Chicago's recent tax hike will help fill a multibillion-dollar hole in its public pension funds, but it won't be enough to close the gap, according to a report Tuesday by bond rater Moody's.
"Despite significantly increasing its contributions to its pension plans, Chicago's unfunded pension liabilities could grow, at a minimum, for another 10 years," the report said.
Last month, the Chicago City Council approved a $7.8 billion budget that includes a highly unpopular tax hike proposed by Mayor Rahm Emanuel to make up for years of underfunding city workers' pensions. The package included a $543 million property tax hike, phased in over four years, increases in other fees, and spending cuts aimed at filling a $20 billion hole in the city's pension obligation.
With one of the largest and most troubled pension systems in the country, Chicago and its efforts are being widely watched around the country by millions of public retirees in dozens of older cities with large badly underfunded pensions.
Read MorePensions aren't what they used to be
Last year, Moody's estimated that U.S. public pensions don't have nearly enough to pay what they owe current and future retirees. The top 25 biggest public retirement systems alone — covering 40 percent of the $5.3 trillion in total public plan assets — are at least $2 trillion short of what they'll need to make good on the promises to millions of police, firefighters, teachers and other public sector workers.
Since then, those unfunded pension liabilities have continued to rise faster than revenues for state and local governments. Some have responded with benefit cuts, delayed retirement ages and increased contributions from pension plan participants.
But the rising burden is also crowded out spending on other services provided by state and local governments. Higher taxes and city service cutbacks prompt residents and businesses to move elsewhere, dampening a city prospects economic growth and reducing the tax base.
"This is the equivalent of a municipal illness," Chicago Alderman Patrick O'Connor told Reuters last month shortly after voting in favor of the city's latest budget. "We don't have the option of saying no. We have the option of picking our choices for staying alive."